What Europe’s top venture capitalists really think

While America was tucking into its turkey dinners last week, I was in Milan mingling with a group of European venture capitalists — and trying to understand what it is that makes the continent’s investors tick.

The event, Kultur Convivio, drew together a range of the continent’s leading lights — some old (such as French firm Partech, which was founded 29 years ago) and some very, very new (at least one investor hadn’t officially finished pulling his first seed fund together).

It was a rare opportunity to get some insight into what is, from the outside at least, a disjointed and sometimes contradictory scene. Here are some things I took away from the event:

There is no single answer

One of the refrains from almost everyone in attendance was that there are no silver bullets: most deals are dealt with on a case-by-case basis. This is partly because investors prefer close relationships with their companies, but it’s also infrastructural: there may be a single currency, but there is no single market in Europe. This means the investment scene is fairly disconnected, with most VCs preferring to stay close to home in order to have better relations with their portfolio companies — and “close to home” usually means “in their own country”.

Exits inside Europe are the problem

Jason Whatmire of Germany’s Earlybird gave a keynote speech in which he made the point that European companies and their investors have enjoyed a year with more than 40 exits valued at more than $100 million, including Autonomy’s sale to HP, Amazon’s purchase of Lovefilm and IPOs for the likes of Yandex and Mail.ru. Index Ventures alone has seen 15 exits in the last year. But the reality is that most of the significant exit opportunities are still outside Europe: selling to American or Asian acquirers, listing on the New York exchange are still more popular. That’s a problem.

Regional opportunities are still growing

While Europe’s biggest markets — such as Germany, France and the U.K. — are fairly mature, they aren’t saturated. This is one reason we see plenty of local clones appearing, and one reason that cities like Berlin, Paris and London are able to support fairly healthy startup ecosystems. But there are also very significant opportunities elsewhere, and particularly on continental Europe’s fringes. Russia is huge opportunity, Turkey is growing very fast, and there are others following on, too.

These are interesting trends if you play them out over the next five to 10 years — and suggest a few things to me about what we’re going to see down the road.

First, we’ll see Europe’s center of gravity move east. Russia is likely to exert more influence as it grows as a market, but it will also reinforce Germany’s grip on the region: German investors are already moving fast, which will enhance Berlin’s position as a startup hub since it can act as a gateway to Eastern Europe.

Second, we’ll see more businesses that try to become international very quickly (since intra-European exits are poor). At the same time, I think we’ll also see plenty more local clones emerging to try and sell to international businesses looking to move into the European market.

Finally, it’s a cliche — but the financial crisis presents an opportunity too. It will be particularly intriguing to watch what happens in countries like Italy, Greece and Spain, where the local economy is so fragile that entrepreneurship may not just be the best option — it may be the only option.